## MEMORANDUM

TO: Record

FROM: EPA

DATE: March 18 , 2013

SUBJECT: Supporting Information for New Source Model Projects ( DCN CBM00666 )

EPA developed model projects to represent a typical project 1 

### in each coalbed methane (CBM) discharging basin 2



### • 

### Section 1 discusses b asin s included in the new source analysis ; to analyze the costs of potential new regulations for the industry. U.S. EPA’s Economic Analysis for Existing and New Projects in the Coalbed Methane (CBM) Industry (DC N CBM00680 ) document describes EPA’s new source analysis and results

. This document provide s details on the new source model project input data :

**•** 

### Section 2 provides information on the data sources used to develop the model projects for each basin ; and

**•** 

### Section 3 discusses the quality of the d ata sources used.

EPA developed model projects using data from the Detailed Questionnaire

, which collected industry data as of 2008

, and from publicly available data sources. A model project represents an average new project for the basin. All project

- level data submitted in the Detailed Questionnaire

are considered confidential business information (CBI); therefore, the specific values for each

m odel project parameter are provided in a CBI spreadsheet (DCN CBM00666.A1 )

.

1. C OAL 

### B ASINS 

### I NCLUDED IN 

### N EW 

### S OURCE 

### A NALYSIS



### Table 1 provides a summary of the basins included in EPA’s new source analysis

. The basins
included in Table 1 had CBM projects that discharged produced water to surface water as of 2008, the Detailed Questionnaire response year. EPA assumed new projects in these basins may also discharge their CBM pr oduced water. EPA excluded basins that use zero discharge methods

, such as underground injection

, from the new source analysis because EPA assumed any new projects in these basins would also manage the water without dischar g ing and would not incur

any cost s for a potential new regulation . Although projects in the Illinois Basin are expected to discharge their CBM produced water, they were excluded from the new source analysis because EPA expects CBM development in the Illinois Basin to be limited ( Tedesco, 2004 ).

1 EPA defines “ project ” as a well, group of wells, lease, group of leases, or recognized unit that is operated as an economic unit when making production decisions.

2 A discharging basin is defined as a basin with CBM operations that may discharge a portion of their water to
surface water.

### Memorandum January 29, 2013 Page 2

Table 1 . Rationale for Scope of Coal Basins Included in EPA’s CBM New Source Analysis

Coal Basin a State(s) Included in
New Source

Analysis ? EPA Rationale

Black Warrior Alabama Yes This basin may have minimal potential for new sources. Based on phone conversations with the state, no new
wells have been drilled as of 2012 (ERG , 2012). EPA assumed data about the Black Warrior Basin would provide appropriate representation for the Cahab a Basin, for which EPA had minimal data.

Greater Green
River Wyoming
Colorado Yes CBM development is expected to continue in this basin. Existing CBM projects have the potential for discharge to surface water. According to a company website (Double Eagle Petroleum Co.), CBM development for the operator has occurred between 2006 and 2011 and production has increased by over 350% (DBLE, 2011).

Illinois Illinois
Indiana Kentucky No CBM development is expected to be limited. E xisting CBM projects have not been considered financially viable

, and some projects have been abandoned because of operator problems and reservoir characteristics. In Illinois,

c oal

- mining companies own individual coal seams through coal severences , which are a roadbl ock to developing
CBM resources in the basin (Tedesco, 2004)

.

North and

Central Appalachian Kentucky
West Virginia

Ohio Pennsylvania

Virginia
Tennessee Yes Based on EIA, 2007, the recoverable r esources in the Appalachian Basin are still significant. EPA does not have additional data about the potential for future CBM development in the Appalachian basin.

Powder River Wyoming
Montana Yes CBM development in this basin is relatively new (compared to the eastern US basins). Based on EIA, 2007, the
recoverab le resource s in this basin are significant ( U.S. DOE , 2006)

.

Raton Colorado
New Mexico Yes CBM development in this basin is relatively new (compared to the eastern US basins). Based on EIA, 2007, the recoverable resources in this basin are significant.

a

– The coal basins included in Table 1 reported discharging to surface water as of 2008.

### Memorandum January 29, 2013 Page 3

2. M ODEL 

### P ROJECT 

### S CENARIOS



### For the Appalachian, Black Warrior, and Powder River Basins, E PA developed two model project scenarios. Scenario 1 used information from the D etailed Q uestionnaire and S cenario 2
used information from publicly available data sources. Table 2 list s the references used to develop model project input parameters. For information from the D etailed Q uestionnaire

, EPA calculated overall averages for each basin and parameter

. Table 2 lists the Detailed Questionnaire field names, with question numbers noted parenthetically, for Scenario 1. For information from publicly available data, EPA id entified only one reported value for each parameter per basin

. Table 2 may list more than one reference for Scenario 2 if the input parameter value was
identified usi ng different sources for different basins. If information was not available from public data sources for the basin

, EPA used the Detailed Questionnaire average to supplement
the Scenario 2 information.

Table 2

. Model Project Assump tion References

Input Parameter Scenario 1

– D etailed Q uestionnaire Question a Scenario 2

- Existing
Source Reference a Basins Using
Detailed Questionnaire
Data in
Scenario 2

Wells per project (# wells) Wells in project (A

- 1) and

screener NA

- Detailed Questionnaire data (see Scenario 1) Appalachian
Black Warrior
Powder River

Initial gas production (MCF/day/well) Total gas (B

- 59)/ # days/ wells EIA, 2010; U.S. DOE, 2002; Vail and Conrad,
2003

--

Initial water production (bbl/day/well) Total water (B

- 63)/ # days/ wells EIA, 2010; Petroleum Association of WY,
2005

--

Gas and water decline (%) Gas projections (B

- 98) and water projections (B

- 99) Vail and Conrad, 2003;
ADEM 3

-- ; Petroleum Association of WY; SEC filings

Land cost ($/well) Lease acquisition sum (B

- 20)
and l ump sum to secure lease (B

22) U.S. DOE, 2002; Ladlee, 2011; Lewis,
2004

--

Drilling cost ($/well) Total cost of well drilling (B

- 47)
and Total number of wells drilled(B

- 48) U.S. DOE, 2002; SEC filings

--

Lease cost ($/well) One time outlays on project development

– prior to 2008 (B

23) and t otal outlay on project development

– 2008 (B

- 49) EIA, 2010

--

Gas production operating

cost ($/MCF) Total O&M costs for gas production

– 2008 (B

- 50) and

t otal gas (B

- 59) EIA, 2010; U.S. DOE, 2002; Detailed Questionnaire data Black Warrior

3 The Discharge Monitoring Reports (DMRs ) from the Alabama Department of Environmental Management (ADEM) are referenced in EPA’s No n

- CBI Final Pollutant Database ( CBM00689 ).

### Memorandum January 29, 2013 Page 4

Table 2

. Model Project Assump tion References

Input Parameter Scenario 1

– D etailed Q uestionnaire Question a Scenario 2

- Existing
Source Reference a Basins Using
Detailed Questionnaire
Data in
Scenario 2

Water production operating cost ($/bbl) Total O&M costs for water management

– 2008 (C2

- 7) and

t otal water managed (C2

- 3) U.S. DOE, 2002; Detailed Questionnaire
data Black Warrior Fixed gas production cost ($/well) Assumed 5 percent of total gas production operating cost EIA, 2010

-- Fixed water management operating cost ($/well) Assumed 5 percent of total gas production operating cost NA b

-- NA

– Not Available

a

– See CBI attachment (DCN CBM00666.A1 ) for details about how the specific values for each model project parameter were calculated.
b

– Fixed water management cost is included in fixed gas production cost reported in U.S. DOE 2010

.



### 3. N EW 

### S OURCE 

### M ODEL 

### P ROJECT 

### D ATA 

### S OURCES AND 

### Q UALITY 

### D ISCUSSION



### Table 3 presents all of the data sources used to develop model projects and includes a brief discussion of the data source quality and the data used from the source. EPA used the producer price index (PPI) to convert input data to 2010 industry costs for use in the new source model project input data. Table A 1 in the appendix lists each data source presented in Table 3 with
EPA’s evaluation of the data source against the requirements in the Quality Assurance Project Plan for the Coalbed Methane Existing Data Collection ( QAPP ) ( CBM00693 )

. The QAPP
discusses specific acceptance criteria that dictate whether or not the data are acceptable for use in developing :

**•** Industry Profile;

**•** Produced Water Characteristics;

**•** Treatment Technology Performance; and

**•** Treatment Technology Cost.

The new source analyses used industry profile and treatment technology cost data. Table A 2 presents the a cceptance criteria for these two topics

.

### Memorandum January 29, 2013 Page 5

Table 3 . Data Sources Used to Develop New Source Model Projects and General Assumptions and Data Source Quality

Citation Title Data Source Quality Discussion Data Used a

ALL

, 2006 ALL Consulting (ALL). 2006. A Guide to Practical Management of Produced Water from Onshore Oil and Gas Operations in the United States. October 2006. Prepared for US DOE, National Petroleum Technology
Office. EPA

- HQ

- OW

- 2008

- 0517 (DCN 10000)

. Source represents CBM operations and is a publication from a re cognized industry expert. ALL Consulting provides cost data for ion exchange.

A DEM Alabama Department of Environmental Management (ADEM)

. 4 State database of discharge monitoring report ( DMR ) data. Data reported to state by operators per their permit requirements. The Alabama O&G Commission provides DMR
data for the Black Warrior and Cahaba basins

. EPA used the se data to develop average water decline rates for model projects in these basins.
T he accompanying CBI spreadsheet presents these
values.

Detailed Questionnaire
data 5 U.S. EPA, 2009. Detailed Questionnaire for the
Coalbed Methane Extraction Sector. October. Primary data. See Quality Assurance Project Plan for the Review and Data Entry of the Engineering Portions of the Coalbed Methane Questionnaire and Quality Assurance Project Plan for the Economic Portion of the Coalbed Methane Detailed Questionnaires and
Coalbed Methane Eco nomic Analysis
Task

. EPA used economic and production data from the Detailed Questionnaire to develop all of the
S cenario 1 model projects and to supplement the
S cenario 2 model projects, where needed.

CSM, 2009 Colorado School of Mines (CSM). 2009. An Integrated Framework for Treatment and Management of
Produced Water: Technical Assessment of Produced Water Treatment Technologies 1st Edition. RPSEA Project 07122

- 12. November 2009. EPA

- HQ

- OW

2008

- 0517 (DCN 10007)

. Source represents CBM operations and
is a publication from a recognized industry expert. The Colorado School of Mines provides cost data for ion exchange. See accompanying CBI spreadsheet for details about these cost
calculations.

Drake, 2007 Drake Water Technologies. 2007. Drake Process Technology: Scope and Pricing Summary. EPA

- HQ

OW

- 2010

- 0824 ( DCN 05283 ). Source represents CBM operations and is a publication from an industry vendor. The Drake Water Technologies document presents

cost data for the Drake ion exchange treatment system. See accompanying CBI spreadsheet for
details about these cost calculations.

4 Discharge Monitoring Reports (DMRs) from the Alabama Department of Environmental Management (ADEM) were provided via internal file transfer protocol (ftp).
These data are included in EPA’s No n

- CBI Final Pollutant Database ( CBM00689 ).

5 The CBM Detailed Questionnaire was sent to CBM operators in 2009 requesting information for 2008 operating conditions.

### Memorandum January 29, 2013 Page 6

Table 3 . Data Sources Used to Develop New Source Model Projects and General Assumptions and Data Source Quality

Citation Title Data Source Quality Discussion Data Used a

EIA, 2010 Energy Information Administration ( EIA ). 2010. Oil & Gas Lease Equipment and Operating Costs 1994 Through 2009. Release d: September 28. Available
online at: http://www.eia.gov/pub/oil_gas/natural_gas/data_publi cations/cost_indices_equipment_pr oduction/current/co ststudy.html Government publication reflecting current CBM practices. EIA provides data about lease costs, gas production and cost data, and water production and cost data. EPA used these data to develop scenario 2 model projects for the Appalachian, Black Warrior, and Powder River basins.

Ladlee, 2011 Ladlee, Jim. 2011. The Implications of Multi

- Well
Pads in the Marcellus Shale. Cornell's Research & Policy Brief Series. September. Available online at: http://devsoc.cals.cornell.edu/cals/devsoc/outreach/card i/publications/loader.cfm?csModule=security/getfile&P ageID=101698 8 Source represents CBM operations and is a university publication. Ladle e provides land cost data for eastern U.S. CBM basins (i.e., Appalachian, Illinois).

Lewis, 2004 Lewis, Terry. 2004. Federal Government Leases Land in Alabama, Arkansas, Louisiana, M ichigan, and Mississippi, for Oil and Gas Exploration. September
24. Available online at: http://www.blm.gov/pgdata/etc/medialib/blm/es/og_sal es.Par.2900.File.dat/PR_Oil&GasLeaseSept23_04.pdf Government publication reflecting current CBM practices. Lewis provides land cost data for Alabama CBM basins (i.e., Black Warrior, Cahaba).

Petroleum
Association of WY, 2005 Petroleum Association of Wyoming. 2005. CBNG Water Management and Treat ment Options in Wyoming's PRB. October. Available online at: http://deq.state.wy.us/wqd/wypdes_permitting/WYPD ES_cbm/Pages/CBM_Watershed_Permitting/Tongue_ PrairieDog_HangingWoman_Badge r_Creek]/Tongue% 20PHB%20Downloads/Meeting%202%206

- 8

- 06/WSBP%20Water%20Mange%20Pres%206

- 06.pdf Source represents CBM operations and is a publication from an industry trade organization. The Petroleum Association of Wyoming provides water production and decl ine data for western U.S. CBM basins (i.e., Powder River, Green River, Raton).

PPI U.S. Bureau of Labor Statistics (BLS). Producer Price Index (PPI) . Available online at: http://www.bls.gov/ppi/ Government publication. Standard price
reference. The Producer Price Index was to calculate cost year conversions throughout the new source analysis

.

### Memorandum January 29, 2013 Page 7

Table 3 . Data Sources Used to Develop New Source Model Projects and General Assumptions and Data Source Quality

Citation Title Data Source Quality Discussion Data Used a

SEC F ilings U.S. Securities and Exchange Commission ( SEC ) Filings for the following companies Constellation Energy Partners LLC's SEC Filing (2007) ( http://www.sec.gov/Archives/edgar/data/136
2705/000119312508045648/d10k.htm ) GeoMet, Inc's SEC Filing (2011) ( http://www.sec.gov/Archives/edgar/data/135
2302/000119312512140602/d280036d10k.ht

m ) Summit Gas's SEC Filing (2009) ( http://www.summitgas.com/Docs/10_K_3_3 1_10.pdf ) SEC filing from CBM operator. EPA used SEC filings to calculate average gas decline rates and drilling costs for CBM basins
included in the new source analysis

.

U.S. DOE,
2002 U.S. D epartment of Energy (D OE ), Office of Fossil Energy and National Energy Technology Laboratory ( NETL ). 2002. Powder River Basin Coalbed Methane Development and Produced Water Management Study. November. Prepared by Advanced Resources International, Inc. (ARI). Availab le online at: http://www.fe.doe.gov/programs/oilgas/publications/co albed_methane/PowderRiverBasin2.pdf Government publication reflecting CBM practices. U .S. DOE provides information about gas production and operating costs and land and drilling costs in the western U.S. CBM basins. EPA also used the baseline water production operating costs provided by U.S. DOE to apply
costs for the Powder River Basin.

U.S. DOE,
2006 U.S. DOE, 2006. The Economics of Powder River Basin Coalbed Methane Development. January. Prepared by Advanced Resources International, Inc. ( ARI ) . Available online at: http://www.sentrypetroleum.com/wp

content/uploads/the_economics_of_powder_river_basi n_coalbed_methane_development.pdf Government publication reflecting CBM practices. EPA used information from U.S. DOE to estimate
hurdle rates.

### Memorandum January 29, 2013 Page 8

Table 3 . Data Sources Used to Develop New Source Model Projects and General Assumptions and Data Source Quality

Citation Title Data Source Quality Discussion Data Used a

Vail and Conrad, 2003 Vail, Bill and Matt Conrad (Marshall Miller and Associates)

. 2003. Coalbed Methane Development, An Issues Overview. October 29. West Virginia Coal Bed Natural Gas Workshop 6 . Roanoke, WV. Available

o nline at: http://www.wvenergyroadmapworkshops.org/presentat ions/03Oct_Miller.pdf Source represents CBM operations and is a presentation by an engineering company presented at a CBM workshop. Vail and Conrad provides information about gas production and decline rates.

a

– See accompanying CBI spreadsheet for details about the new source model project input parameters

.

6 The West Virginia Coal Bed Natural Gas Workshop was part of the Energy Roadmap Workshop Series commissioned by West Virginia governor Bob Wise.

### Memorandum January 29, 2013 Page 9
3.1

1. DBLE, 2011

. Double Eagle Petroleum Company website. Available online at: http://www.dble.com/Home References

2. EIA, 2007. US Coalbed Methane: Past, Present, and Future; U.S. Energy Information Administration, November 2007.

3. E RG , 2012

. Coalbed Methane State Phone Calls. Various D ates and Contacts. EPA

- HQ

OW

- 2010

- 0824. DCN ##.

4. Tedesco, Steven. 2004. Coalbed Methane Potential and Activity of the Illinois Basin. Prepared in association with Dorado Gas Resources LLC. Adapted from presentation at AAPG Annual Meeting in Salt Lake City, Utah (May 11

- 14, 2003).

### Memorandum January 29, 2013 Page 10

4. A PPENDIX 

### A

The following designations are used within the acceptance criteria of Table A 1 :

NA

– Acceptance criteria does not apply to the given data source.


– Data source meets the associated criteria listed in Table A 2

. A

– Data source is not an industry operator, vendor, or government source but is from a recognized industry expert.
B

– Data source is for whole system and does not include a discussion of c osts for specific components of the system (e.g., transportation, fuel, labor, chemicals).
C

– Data source refer s to oil and gas or shale operations. E PA assumed that land cost data for these operations would be similar to CBM operations.
D

– Data source i s from an organization whose reputation is unknown (see Table 3 for specific details about this data source).

Table A 1

. Data Sources Evaluation of Acceptance Based on QAPP Criteria

Citation Key Data Used Data Quality Notes Acceptance Criteria a Currency Accuracy/Reliability Scope Reasonableness

ALL, 2006 C ost data for ion exchange Source represents CBM operations and is a publication from a recognized industry expert. NA A B 

ADEM DMR data for the Black Warrior and
Cahaba basins used to develop average water decline rates for model projects in these basins State database of DMR data. Data reported to state by operators per their permit requirements.    

Detailed Questionnaire
data (2008) E conomic and production data Primary data. See Quality Assurance Project Plan for the Review and Data Entry of the Engineering Portions of the Coalbed Methane Questionnaire.    

CSM, 2009 Cost data for ion exchange Source represents CBM operations and is a publication from a recognized industry expert. NA A  

Drake, 2007 Cost data for the Drake ion exchange treatment system Source represents CBM operations and is a publication from an industry vendor. NA  B 

EIA, 2010 Lease costs, gas production and cost data, and water production and cost data for the Appalachian, Black Warrior, and Powder River basins Government publication reflecting CBM practices.    

Ladlee, 2011 Land cost data for eastern U.S. CBM basins (i.e., Appalachian, Illinois) Source represents CBM operations and is a university publication.   C 

### Memorandum January 29, 2013 Page 11

Table A 1

. Data Sources Evaluation of Acceptance Based on QAPP Criteria

Citation Key Data Used Data Quality Notes Acceptance Criteria a Currency Accuracy/Reliability Scope Reasonableness

Lewis, 2004 Land cost data for Alabama CBM basins (i.e., Black Warrior, Cahaba) Government publication reflecting CBM practices.   C 

Petroleum
Association of WY, 2005 Water production and decline data for western U.S. CBM basins (i.e., Powder River, Green River, Raton) Source represents CBM operations and is a publication from an industry trade organization.    

PPI Cost year conversions Government publication. Standard price
reference. NA NA NA NA

SEC filings Average gas decline rates and drilling

costs Actual financial data reported by CBM operators.    

U.S. DOE,
2002 Gas production and operating costs and land and drilling costs in the western U.S. CBM basins; Baseline water production operating costs for
the Powder River Basin Government publication reflecting CBM practices.    

U.S. DOE,
2006 Hurdle rates Government publication reflecting CBM practices.    

Vail and Conrad, 2003 Gas production and decline rates Source represents CBM operations and is a presentation by an engineering company presented at a CBM workshop.  D  

a

– See Table A 2 for descriptions of the acceptance criteria from the Quality Assurance Project Plan for the Coalbed Methane Existing Data Collection (QAPP) (DCN
CBM00693 )

.

### Memorandum January 29, 2013 Page 12

Table A 2 . QAPP Acceptance Criteria

Topic Industry Profile Treatment Technology Cost Data

Currency Published or presented in 2001 or after. EPA may use information from sources prior to 2001 if it represents practices currently in place. NA

- Costs per year basis are reported. EPA converted all costs to a standard year.

Accuracy/ Reliability EPA assumes the following sources are accurate:

**•** Government publications;

**•** Peer

- reviewed journal articles;

**•** Presentations at professional technical conferences; and

**•** Publications from recognized industry experts or organizations. Data are obtained directly from the CBM operator, a vendor who does business with CBM operators and/or government entities collecting data from CBM operators.

Scope Information pertains to CBM operations and not conventional oil and gas or shale gas. Reflect the costs for equipment, including transportation and installation, supplies, operating costs (e.g. electricity, fuel, labor, chemicals), and labor at
CBM locations. Representativeness Source represents a geographic area in which CBM operations are active or emerging

Reasonableness EPA will compare information collected from secondary data sources to primary sources (e.g., CBM Detailed Study Report, Detailed Questionnaire data) to confirm
the information is reasonable based on documented CBM practices. Cost trends follow the design basis trends (e.g., costs for large produced water volumes are greater than the costs f or small volumes).

Comparability Order

- of

- magnitude of costs is comparable to costs for similar installations at similar operations.

Completeness NA Includes costs for any of the elements necessary to implement the technology option:

**•** One

- time costs for equipment purchase and installation;

**•** On

- going operating and maintenance costs (annual costs); and

**•** Periodic operating and maintenance costs, as appropriate.